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Associated Company Nordea Bank Ab in 2012

Nordea, the largest bank in the Nordic region, has around 11 million customers and is among the ten largest universal banks in Europe in terms of total market capitalization. In Sampo Group’s reporting Nordea is treated as an associated company and is included in the segment Holding. 

On 31 December 2012 Sampo plc held 860,440,497 Nordea shares corresponding to a holding of 21.2 per cent. The average price paid per share amounted to EUR 6.46 and the book value in the Group accounts was EUR 7.77 per share. The closing price as at 31 December 2012 was EUR 7.24.

Nordea’s Board of Directors proposes to the AGM 2013 a dividend of EUR 0.34 per share (0.26), corresponding to a payout ratio of 44 per cent of net profit in line with the dividend policy. If the AGM approves the Board’s dividend proposal, Sampo plc will receive a dividend of EUR 293 million from Nordea in March 2013.

The following text is based on Nordea’s full year 2012 result release published on 30 January 2013.

Results
Nordea Bank AB, 2012 
EURm20122011Change, %
Net interest income

5,752 

5,456

5
Total operating income

10,236 

9,501

8

Profit before loan losses 5,050  4,282 18
Net loan losses

-933 

-735

27
Loan loss ratio (ann.), bps

28

23

-
Operating profit

4,117 

3,547

16
Risk-adjusted profit

3,245 

2,714

20
Diluted EPS, EUR 0.78 

0.65

Return on equity, %

11.6 

10.6

In 2012, Nordea delivered on its financial plan from 2011. Costs remained flat, risk-weighted assets decreased and income increased to a record level. The outcome of that plan was a rapid increase in capital and an all-time high operating profit in the full year of 2012, and one of the best quarterly results ever. Nordea improved its return on equity (ROE), which was 11.6 per cent in 2012, on a significantly larger capital base. The core tier 1 capital ratio was above 13 per cent at the end of the year.

Total income increased in 2012 by 8 per cent compared to 2011. Operating profit increased 16 per cent, due to higher total income, and stable costs. Risk-adjusted profit increased by 20 per cent compared to the preceding year. The effect from currency fluctuations contributed to an increase in income and expenses of approx. 1.5 percentage points for 2012 compared to 2011.

Net interest income increased 5 per cent compared to 2011. Lending volumes increased 3 per cent and corporate lending margins were higher, while deposit margins have decreased from 2011. Net fee and commission income increased 5 per cent and net result from items at fair value increased by 18 per cent compared to last year. Income under the equity method was EUR 93 million and other income was EUR 103 million.

Total expenses increased 3 per cent compared to last year and staff costs increased 3 per cent, when excluding the restructuring costs last year. Total expenses decreased 0.5 per cent compared to 2011 in local currencies when excluding the restructuring costs last year and excluding performance related salaries and profit-sharing, i.e. with the cost definition for the cost target in the New Normal plan.

Net loan loss provisions increased to EUR 933 million, corresponding to a loan loss ratio of 28 basis points (23 basis points last year excluding provisions related to the Danish deposit guarantee fund).

Net profit increased 19 per cent to EUR 3,126 million, due to higher income and stable costs. Risk-adjusted profit increased 20 per cent compared to last year to EUR 3,245 million. 

Total lending, excluding reversed repurchase agreements, amounted to EUR 320 billion, down 1 per cent in local currencies compared to the previous quarter and up somewhat compared to one year ago. Overall, the credit quality in the loan portfolio remained solid in the fourth quarter, with a positive effect from migration in the institutions and retail portfolios. The impaired loans ratio increased to 188 basis points of total loans. Total impaired loans gross increased by 1 per cent from the previous quarter. The provisioning ratio was unchanged compared to the end of the third quarter at 41 per cent.

The Group’s core tier 1 capital ratio, excluding transition rules, was 13.1 per cent at the end of the fourth quarter, a strengthening by 0.9 percentage points from the end of the previous quarter. The total capital ratio excluding transition rules increased 0.9 percentage points to 16.2 per cent. Improved capital ratios have been achieved by strong profit generation and a decrease in risk-weighted assets (RWA). Nordea has during the quarter received Foundation IRB approval for the corporate and institutions portfolio in the Baltic countries, which had an RWA reduction effect of EUR 1.6 billion. Additionally, Nordea was in December 2012 approved by the FSAs in Sweden and Finland to use the internal models method (IMM) for calculating counterparty credit risk. The IMM will be implemented in the RWA calculations in the first quarter in 2013.

RWA were EUR 167.9 billion excluding transition rules, down EUR 11.1 billion, or 7 per cent, compared to the previous quarter. The core tier 1 ratio including transition rules under Basel II was 10.2 per cent. The capital base was EUR 27.3 billion, the tier 1 capital was EUR 24.0 billion and the core tier 1 capital was EUR 22.0 billion.

The long-term funding portion of total funding was at the end of the fourth quarter approx. 70 per cent (72 per cent at the end of the previous quarter). The Liquidity Coverage Ratio (LCR) for the Nordea Group was 127 per cent at the end of the fourth quarter.

Nordea has decided to establish a financial plan for increased return on equity (ROE) and a new capital policy for the new regulatory environment. The plan is set in order to shape the future of Nordea for sustainable profitability and efficiency, closer customer relationships and a solid capital position and follows on the new normal plan, which has further strengthened Nordea’s platform in 2012. 

The financial plan has an ambitious financial target of 15 per cent ROE under normal market interest rate conditions and with a core tier 1 capital ratio of above 13 per cent. The capital policy states that, no later than 1 January 2015, the target for the core tier 1 capital ratio is to be above 13 per cent and for the total capital ratio to be above 17 per cent. The core tier 1 capital ratio is expected to stay above 13 per cent during 2013 and onwards, including the effects from regulatory changes and model rollouts. The dividend policy remains unchanged. Excess capital is expected to be distributed to shareholders.

For more information on Nordea Bank Ab and its result release for 2012, see www.nordea.com.